Financial Information
MANAGEMENT DISCUSSION AND ANALYSISThe following management’s discussion and analysis of operating results and financial position is supplementary to, and should be read in conjunction with, the audited financial statements for the fiscal year ended October 31, 2005. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in Canada and all amounts, unless otherwise indicated, are expressed in Canadian dollars.
OVERVIEW
AlarmForce provides security systems and monitoring services in Canada and the US, primarily in the residential market. The majority of revenue is made up of monthly recurring revenue (MRR) derived from subscriber agreements. Under its standard customer contract the company charges a fixed monthly fee for the system including monitoring and service. AlarmForce manufactures and installs alarm equipment, which it continues to own under the terms of the subscriber agreement. The company’s base of subscribers has expanded with the addition of new monitored accounts, and as a result the total monthly recurring revenue from subscribers has increased, resulting in growth in revenue, operating margins and cash flows.
Effective in 2005, the company changed the term of the subscriber contracts from four years to three years. Thus, revenue from the sale of add-on equipment, which consists principally of optional system features to new and existing subscribers, is now deferred and recognized over the three year term of the subscriber agreement.
The Company continues to be Canada’s largest installer of two-way voice home security systems. The monitored subscriber base has increased from 48,700 accounts at the end of the 2004 fiscal year to approximately 57,000 accounts at the end of the 2005 fiscal year, and MRR has increased correspondingly.
In 2005, AlarmForce expanded its operations into the US, with the first phase based in Charlotte in the State of North Carolina. The company has commenced to establish brand recognition in the US by installing and servicing AlarmForce’s two-way voice interactive technology. Approximately 1% of the total number of subscriber accounts monitored at the end of the 2005 fiscal year were located in the US. In December 2005 AlarmForce announced plans to increase coverage in the US market by commencing to install and service alarm systems in the State of Ohio, with a base to be established in Columbus in February 2006.
Annual InformationThe following summary of selected audited financial information is derived from, and should be read in conjunction with, the company’s audited financial statements, including the notes thereto, for the years ended October 31, 2005, 2004 and 2003:
| Subscriber base | 2005 | 2004* | 2003* |
| 57,000 | 48,700 | 40,800 | |
| $ | $ | $ | |
| OPERATIONS: | |||
| Total revenue | 17,227,494 | 14,393,779 | 11,986,089 |
| Gross margin | 13,538,797 | 11,073,375 | 8,814,604 |
| EBITDA*** | 4,370,324 | 3,050,140 | 2,564,780 |
| Income before income taxes | 1,290,563 | 804,232 | 835,828 |
| Net income | 810,214 | 303,600 | 706,297 |
| Cash flow from operating activities | 3,518,787 | 4,238,574 | 2,665,485 |
| Basic earnings per share | 0.07 | 0.03 | 0.08 |
| Diluted | |||
| Diluted EBITDA*** per share | 0.37 | 0.28 | 0.26 |
| FINANCIAL POSITION: | 2005 | 2004* | 2003* |
| Total assets | 20,389,283 | 20,716,830 | 13,639,897 |
| Shareholders’ equity | 13,678,912 | 12,782,338 | 6,376,857 |
| Debt/Equity ratio** | 0.06 | 0.17 | 0.98 |
| EBITDA*** | 4,370,324 | 3,050,140 | 2,564,780 |
* Restated
*** Earnings Before Interest, Tax, Depreciation and Amortization is a key performance indicator in the security industry and should not be interpreted as a GAAP earnings.
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Testimonials
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One morning I left home earlier than planned and forgot to turn the alarm off the home setting. When I returned I saw that a representative of AlarmForce had visited our home to ensure there had been no break in, by leaving a notice in our mail box.
-Cheryl H. - Edmonton, AB -
Very professional and nice technician.
-Andy, ON -
Alarm force is great. As a single unmarried female, living alone can be scary. Alarm force makes me feel safe because it works. It's also affordable on a one-income budget. I highly recommend it to anyone considering an alarm system.
-J - Columbus, OH -
Dear Joel: I have listened to your comments about your service on the radio for a while. As a retired Volunteer Fire Rescue Captain, I realize the importance of a quick response. I am currently looking after my bosses house while he is on vacation. I entered the premises, and hit the wrong button to disarm. Immediately, your dispatcher was talking to me. He called on the land line, and helped me out. I'm extremely impressed with your service, and your personnel. So much so, I want to install Alarm Force in my house. Keep up the good work Joel. I'll rest easier knowing you're on our side
-John, AB -
Fantastic in all ways. I tell everyone about you.
-Deb, BC -
I was a bit hesitant about calling Alarmforce as I thought I would get the big sales pitch and have to commit my first born to get a system but I was connected to a salesperson named Terry who sounded more like he could have been my Dad than some high pitched sales guy. He just gave me the facts, told me that I could probably install the system myself and it all went off very well. We are always treated well when we call in for a test or even when we have accidentally set off the system. We feel great about our system, it is very sensitive and makes us feel a whole lot safer. Thanks Alarmforce!
-Ron B. - Sundre, AB -
It is very assuring to know there will be a live voice on the intercom if something goes wrong. Thank you for your service.
-Darcy, ON -
We were having trouble with our door alarm and it was going off without reason. In one way it was annoying as Alarmforce kept calling us, but it was good to know they were protecting our home. Alarmforce corrected the problem and the problem stopped. I have accidentally set of the alarm myself, but the Alarm Force personnel were extremely patient with me and I am glad that they were there. Thanks Alarm Force, your staff is amazing and I have already recommended you to other people including my sister-in-law who lives alone and feels very secure now knowing she has the two-way voice in case of emergency.
-Brenda M.- Edmonton, AB
